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Wednesday, 24 June 2015

Right Tool for Right Strategy (Why we hired this person for?)


Right Tool for Right Strategy

If you are a Growth and Income investor like John Neff, it makes sense to measure your portfolio in Total Returns basis - with breakdown in dividends received and capital gain/loss marked to market.

But when you see a Income investor measures his portfolio using the same Total Returns method, you go hmm...

The "right" measurement vehicle should ideally match the corresponding strategy.


When reality deviates from plan 

Measurement or tracking is not as important as what WHAT we intend to DO with the information.

Let's say an income investor noticed his dividend income has been declining in the last few quarters - and he has not made any divestments - should he take any corrective actions?

Even trickier is when your dividend income has steadily increased over the last 5 years - and you have not made any new investments - but you noticed your income has stagnated and stopped growing for the past 12 months, should you do anything? Now this is next level stuff!


Track for what?

If you no clue what you should do in the above 2 scenarios, pray tell why are you tracking your portfolio income in the first place?

Land owners, shepherds, and sheep use KPIs for totally different reasons.

This is where you may want to quietly delete your goals and milestones if you discover they are written in the language of sheep.


Why we hired this person for?

Since most people are "investing" on a part-time hobby basis, it could be more important to set goals and write plans when you have an idea what to do when reality deviates from strategy in your day job.

When you don't hit the KPIs you've set for yourself, and you are in the habit of giving the excuse that things are out of your control and influence, you may want to stop and listen to what you've just said...

You mean you set goals and plans on things you can't control and influence?

This is inviting a bulls-eye to be pinned to your back.

Its all fine and dandy during calm seas. But in rough sailing conditions, Captains have been known to issue the order to jettison "dead-weight" off the deck....




14 comments:

  1. you need to have a target, then a plan on how to reach the target
    measurement and review your plan periodically to ensure u are on the right track

    ReplyDelete
    Replies
    1. Jimmy L,

      Let's say if your job/bonus is dependent on you hitting your target, would you go about it the same textbook way as you've described before?

      Have you noticed why some companies have beaten their performance last year yet their share price go down because the results were "below expectations"?

      How about companies that have done worse than last year but their share price go up due to "beating expectations"?

      Now which CEO is betting at setting goals?


      It can be a good exercise to observe and spot how business owners and top management go about setting goals and planning versus those made by junior managers ;)

      They are different. If not, the business owners and top management won't be where they are now.

      And that's where Jamie Dimon from JP Morgan will say, "That's why I earn more than you."

      Delete
  2. Goal is there to reach. We still need to track, measure, review, and revise strategies to reach there. It is not one straight line to there. Never!

    ReplyDelete
    Replies
    1. Qian bei power!

      Need to know when to go all in. When to take money off the table and sock it under the pillow. When to let cash rot.

      And more importantly, know when to don't play anymore - there's an end game somewhere....

      Must not over stay our welcome ;)

      Delete
  3. You know what SMOL,

    We just finished our external validation. Once every 5 years, so it is in a way a big thing.

    It has actually the same problem that you mentioned.

    The saddest thing is:

    I felt like 屈原,“世人皆醉我独醒。” (I know I sound super hao lian... but... sorry..)

    I got a addressing down from my P when I told her I don't see any value-addness for missing 2 weeks of lesson to go for an EV attachment next year. She said I am getting cynical.

    The ironic is, when the report is out, I understand what the AFI is, although many have problems trying to make sense what it makes.

    The irony does not end there. Although the EV team told us that they do not want to be prescriptive in the AFIs, having come from another school who is on the same journey, and going through it twice with a new P who is super good at it, I know what playing that game entails...

    And the AFI basically point to the same game plan. LOL

    Come on la, lets be open about it.

    It is more painful when your bosses don't see it, but you cannot sack your bosses...

    It is all about intelligence defining of goals and targets, alignment of the millions of goals to skills plans and etc. Whoever comes up with the package...I am really not sure if what is happening on the ground now is what he/she wants to see...

    ReplyDelete
  4. Also tell what CW to the EV team...

    I am also thinking about the same thing about company performance, even defensive solid company do not perform in a straight line. I challenge anyone to find a company that perform in a straight line in a bear bull bear ... I am not talking stock price but earnings or profits whatever you want it...

    YZJ's Ren is one of the most respected CEO I had. Yeah, laugh all you want. His company is the most profitable in China and he paid himself peanuts, talk about leadership transition at his prime.

    His KPI: Exit from the doldrum one year earlier than the industry... something like that...

    That KPI will be laughed at in my circle, although I find it highly intelligent

    ReplyDelete
  5. Sorry to (Cow B)square at your waterhole

    ReplyDelete
    Replies
    1. I think I am the first deadweight to go.... sigh

      Delete
    2. Sillyinvestor,

      No problem. Let it out.

      1) It's more a round peg square hole thing. If you look at "My Story", I had to job hop till 30 years old before I finally found a company that "recognise" my worth and contributions. 14 years of wonderful adventure ensured - 7 of them overseas.

      2) It's not all plain sailing. I had 7 bosses in that wonderful company and 2 of them I pray everyday they would get promoted out... So I understand what you are going through.

      3) Time can solve a lot of things. I trust you will figure what to do in due time.

      However, if you already know who you are and what you want, and you are still clinging to your security blanket, I'll give you a kick like I did with another blogger I like recently ;)

      4) When the butterfly came to sayang you after I've poked you, I was a bit worried I've poked too hard...

      Glad you are much stronger!

      External motivations are good to have. What's more important is the internal combustion engine inside of you.

      Its time to find out whether you are cold-blooded or warm-blooded ;)

      All the best my friend!

      The harder the journey, the greater the sense of accomplishment!

      Delete
  6. Thanks SMOL,

    Seriously, no balls to go. Push factor not strong enough and pull factors all there.

    Thanks

    ReplyDelete
  7. Yes it is very sad, when we have to continue doing what we don't want to do anymore due to many other considerations. Wish you can leave one day when you can or able to mitigate your considerations.

    ReplyDelete
    Replies
    1. temperament,

      I think its a good time to re-share the song that represents my aspirations and outlook on life:

      El Condor Pasa

      Although I've made fun of men being hammers, given the choice of being a hammer or a nail, I would choose to be the hammer.

      Delete
  8. I agree.

    http://www.wsj.com/articles/SB10001424127887323539804578261780648285770

    ReplyDelete
    Replies
    1. SMK,

      I appreciate your kindness.

      Its good to get affirmation ;)


      Measuring the "kindness" of Singaporeans through the "precision" of dollar amounts donated is one thing.

      Measuring the number of hours Singaporeans volunteer to charitable organisations is another thing altogether.

      One may lead to unintended side effect who give more money talk louder, and the "selling" of immortality through names on buildings or plagues on walls... Encourage a "throw" money at problem mindset...

      The other is much harder to measure and achieve. A bit like Literature hard to score distinctions, so let's drop it altogether...

      But like Literature, it could be a much better measurement of the soul.

      Delete

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